EnglishNidhi Companies are registered in the Companies Act, 2013. A Nidhi company is a type of Company that belongs to the non-banking finance category. This type of firm is recognized under Section 406 of the Companies Act, 2013 and it is controlled by Nidhi Rules 2014 under the Central Government of India. The basic objective of this type of business or company is to facilitate lending money among the core members of their Nidhi company. Here are some examples of Nidhi Company, mutual benefit funds, permanent funds, benefit funds, and mutual benefit companies.
Actually the name, Nidhi is one of the familiar words in India which means money or treasure in many Indian languages like Tamil, Telugu, Kannada, and Hindi etc., But, according to Indian Financial Sector, Nidhi Company acts as a Mutual Benefit Company and it is also called various names like Mutual Benefit Fund, Benefit Fund and Permanent Fund.
The main aim to start Nidhi Company is to develop the habit of saving money in a wise manner and using money carefully among the members. Nidhi company urges its members to save their extra money and use the money in a valuable way. It is mandatory that every Nidhi company should have Nidhi Limited in their name and their core business must be to lend and accept deposits among its shareholders and members only.
Below are some of the disadvantages of Nidhi Company:
- Nidhi Company can accept the deposit and lend money only among its shareholders and members which means this type of company can’t accept deposits from the public for any reason. The Nidhi Companies must accept deposits only from their members and shareholders, so obviously, the funds raised from the deposits of the members will be limited.
- If the funds raised from the deposit of members of the company are limited, the availability of money to lend or credit is also limited. This thrash the whole objective for which the Nidhi Companies are started.
- After a year, a Nidhi Company should make sure that it holds a minimum of 200 members and their net owned fund should be Rs.10,00,000 as per Section 406 of the Companies Act 2013 and Nidhi Rules 2014 which may be difficult sometimes.
- The activities of a Nidhi Company fall under RBI vigilance. Even though there is no strict abidance imposed upon the Nidhi Companies by RBI but all their activities are controlled and governed by the Reserve Bank particularly the deposit acceptance operations of the company.
- Other rules and regulations of the Nidhi Company are issued by the central government from time to time. Therefore, A Nidhi company is not totally free from the regulatory framework.
- Nidhi Company has to open 3 branches after completing its 3 successful years in the same place or district. And if a Nidhi Company wants to open branches in other districts then it needs to get RD approval and importantly it cannot open any branches in other states.
- Nidhi Company adopts its plans or schemes for deposits under the guidelines issued by RBI and is not allowed to carry any schemes or plans for more than 5 years.
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